Low opposition to wage tax refund settlement could be financial windfall for Jefferson County

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Muted protests could be a good financial omen for cash-strapped Jefferson County as it goes into Monday's fairness hearing on a proposed $6.5 million settlement over 2009 county occupational tax refunds.

Jefferson County is expected to get more than $6 million of the money set aside for the settlement if Circuit Judge David Rains approves the plan to end the class-action lawsuit that killed the county's original wage tax.

About 900 people out of more than 200,000 eligible workers officially opted out of the proposed settlement and staked a claim to their share of the money, court records show.

If Rains approves the settlement, the opt-out group would be paid first, then an additional $70,000 would be spent to cover added refund expenses, records show.

The rest of the $6.5 million fund would go to the county, which has been teetering on the brink of bankruptcy in part because of the loss of the occupational tax that provided about one-fourth of the county's general fund.

The fairness hearing was set for Rains to hear objections before he decides whether he will grant final approval to the settlement plan.

"Ultimately it is up to the judge to make a ruling based on the law and any evidence and testimony from the fairness hearing," said Courtney French, past president of the Alabama Association for Justice, a plaintiff trial lawyer group.

The settlement is part of a two-tier plan to dispose of $37.7 million in taxes the county collected while unsuccessfully appealing Rains' 2009 order striking down the wage tax and a related business license fee.

Rains has set up a separate pool of $31.2 million for automatic refunds after he approves fees for the three lawyers whose 2007 lawsuit challenged the tax.

The fee for the lawyers -- Sam Hill, Jim McFerrin and Allen Dodd -- will be deducted from the automatic refund pool. The lawyers seek $11 million.

Approval sought

Lawyers representing both the county and taxpayers filed court papers last week asking Rains to quickly approve the settlement, saying it is fair, adequate and reasonable.

Two people signed up to protest the settlement plan at Monday's hearing. They were among five people who filed written objections. Deadlines for both were July 25.

"That is an incredibly low number in both categories," said Mark White, a former Alabama State Bar president. "That probably will move things quicker."

But a low number of objectors is not always a predictor that a settlement will win final approval by the judge, French said.

Often, people who learn they are part of a class-action case do not pay attention to the official notices explaining the settlement, or they don't understand how to object, he said.

"The judge not only will look at the number of objectors, but also to the substance of what those objections are," French said. "Is there a substantive, legitimate argument to be made that the court needs to take into consideration?"

Opponents' arguments are not substantial enough for Rains to reject the proposed settlement, Mark Lembke, a lawyer representing the county, wrote in court papers filed last week.

The five people who filed written objections to the proposed settlement all had a common theme: They felt they were entitled to full refunds, wrote Lembke, of the firm Bradley Arant Boult Cummings.

Lembke's motion recommended that Rains resolve their protests by putting them in the opt-out group.

Lawyers for the two people set to speak Monday also tried unsuccessfully earlier this year to intervene in the case and protest any settlement.

The lawyers -- Matthew Weathers, Edward Dennis and Samuel Hardy -- contend that the proposal before Rains is unconstitutional. They also argue the taxpayers' financial concession to the county in the settlement should be scuttled because no law allows the County Commission to impose a retroactive tax.

Rains has heard and rejected their arguments before and should not let them block settlement approval now, Lembke wrote.

Businesses that operated in Jefferson County in 2009 have until Aug. 15 to file reports with the court-appointed special master, Ed Gentle, to help his firm determine each worker's pro-rata share of the refund money.

The period for the refunds, which includes $21,000 in business license fees the county collected during the appeal, is Jan. 12, 2009-Aug. 13, 2009.

Most workers will get their refunds through the employers that deducted the affected taxes.

All workers from that period will receive the automatic refund from the $31.2 million pool. Only people who opted out of the settlement by filing notice before July 25 will get a refund from the $6.5 million fund.

White, the former bar president, said the low number of objectors was "commendable."

It reflected the hard work the lawyers put into reaching a settlement, including during mediation sessions with Jim Pratt, the current state bar president, White said.

It also bodes well for Rains' approval, he said.

"This was about as adversarial and arms-length a set of negotiations as you will see," White said. "You've got a judge presiding over this case who is recognized as one of the top judges in Alabama."